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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-03-21 compared with 2023-03-16 · 119 added, 121 removed, 569 unchanged (30% of the section changed)

6 unchanged sentences

Because our Revolving Credit Facility bears interest at a variable rate, we will be exposed to market risks relating to changes in interest rates, which could materially impact our consolidated statements of operations should we have any material borrowings under our Revolving Credit Facility.

As of January 28, 2023, we had approximatel y $192 million available on the line of credit.

Giving effect to the Second Amendment, outstanding borrowings under the Revolving Credit Facility would accrue interest at floating rates plus an applicable margin ranging from 1.12% to 1.50% for SOFR loans and 0.125% to 0.50% for base rate loans, and letter of credit fees range from 1.125% to 1.50%, in each case based on the average availability under the Revolving Credit Facility.

As of February 3, 2024, we had approximatel y $216 million available on the line of credit.

The Credit Agreement provides that the interest rate payable on borrowings shall be, at the Company's option, a per annum rate equal to (a) a base rate plus an applicable margin ranging from 0.125% to 0.50% or (b) SOFR plus a margin ranging from 1.12% to 1.50%.

Letter of credit fees range from 1.125% to 1.50%.

We do not use derivative financial instruments for speculative or trading purposes, but this does not preclude our adoption of specific hedging strategies in the future.

3 unchanged sentences

Report of KPMG LLP, Independent Registered Public Accounting Firm ( KPMG LLP , Philadelphia, PA , Audit Firm ID:

Consolidated Balance Sheets as of January 2 8 , 202 3 and January 29 , 20 22

Consolidated Balance Sheets as of February 3, 202 4 and January 2 8 , 202 3

Consolidated Statements of Operations for Fiscal Years 202 3 , 202 2 and 202 1

7 unchanged sentences

We have audited the accompanying consolidated balance sheets of Five Below, Inc.

and subsidiary (the Company) as of January 28, 2023 and January 29, 2022, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended January 28, 2023, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended January 28, 2023, in conformity with U.S.

and subsidiaries (the Company) as of February 3, 2024 and January 28, 2023, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the fiscal years in the three-year period ended February 3, 2024, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended February 3, 2024, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 16, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 21, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

15 unchanged sentences

As discussed in Note 1 to the consolidated financial statements, the Company monitors inventory levels in order to identify slow-moving or obsolete merchandise as these factors can indicate a decline in the market value of the inventory on hand.

The Company’s inventory balance was $528 million as of January 28, 2023.

The Company’s inventory balance was $585 million as of February 3, 2024.

Inventory cost is reduced to net realizable value when cost exceeds the selling price less the cost of disposal.

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(in thousands, except share and per share data)

January 28, 2023 January 29, 2022

February 3, 2024 January 28, 2023

Current assets:

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Net sales $ 3,559,369 $ 3,076,308 $ 2,848,354

Cost of goods sold 1,980,817 1,817,910 1,309,807

Gross profit 1,095,491 1,030,444 652,330

Cost of goods sold (exclusive of items shown separately below) 2,285,544 1,980,817 1,817,910

Selling, general and administrative expenses 757,507 644,831 565,733

Depreciation and amortization 130,747 105,617 84,831

Operating income 385,571 345,043 379,880

17 unchanged sentences

Shares Amount

Balance, February 1, 2020 55,712,067 $ 557 $ 322,330 $ 436,891 $ 759,778

Balance, January 30, 2021 55,935,237 559 321,075 560,252 881,886

Share-based compensation expense — — 25,378 — 25,378

Issuance of unrestricted stock awards

1,790 — 335 — 335

Exercise of options to purchase common stock

12,834 — 389 — 389

Vesting of restricted stock units and performance-based restricted stock units 115,763 1 — — 1

1 unchanged sentence

Repurchase and retirement of common stock

( 368,699 ) ( 4 ) ( 60,007 ) — ( 60,011 )

Issuance of common stock to employees under employee stock purchase plan 3,817 — 828 — 828

Net income — — — 123,361 123,361

— — — 278,810 278,810

Balance, January 29, 2022 55,662,400 556 280,666 839,062 1,120,284

1 unchanged sentence

Issuance of unrestricted stock awards 3,349 — 523 523

1,790 — 335 — 335

Exercise of options to purchase common stock 21,737 — 776 776

12,834 — 389 — 389

Vesting of restricted stock units and performance-based restricted stock units 122,349 1 1

1 unchanged sentence

Repurchase and retirement of common stock ( 247,132 ) ( 2 ) ( 40,005 ) ( 40,007 )

( 368,699 ) ( 4 ) ( 60,007 ) — ( 60,011 )

Issuance of common stock to employees under employee stock purchase plan 6,489 — 824 824

— — — 278,810 278,810

Net income 261,528 261,528

Balance, January 28, 2023 55,537,221 $ 555 $ 260,784 $ 1,100,590 $ 1,361,929

7 unchanged sentences

Net income 301,106 301,106

Balance, January 28, 2023 55,537,221 $ 555 $ 260,784 $ 1,100,590 $ 1,361,929

Balance, February 3, 2024 55,197,875 $ 551 $ 182,709 $ 1,401,696 $ 1,584,956

See accompanying notes to consolidated financial statements.

26 unchanged sentences

Financing activities:

Borrowing on note payable under Revolving Credit Facility — — 50,000

Repayment of note payable under Revolving Credit Facility — — ( 50,000 )

Cash paid for Revolving Credit Facility financing costs — ( 248 ) —

4 unchanged sentences

Net cash used in financing activities ( 95,859 ) ( 43,635 ) ( 66,125 )

Net increase (decrease) in cash and cash equivalents 267,351 ( 203,810 ) 66,293

Net (decrease) increase in cash and cash equivalents ( 152,575 ) 267,351 ( 203,810 )

Cash and cash equivalents at beginning of year 332,324 64,973 268,783

4 unchanged sentences

Non-cash investing activities

Increase (decrease) in accounts payable and accrued purchases of property and equipment $ 1,634 $ 8,810 $ ( 2,445 )

Increase in accounts payable and accrued purchases of property and equipment $ 4,686 $ 1,634 $ 8,810

See accompanying notes to consolidated financial statements.

4 unchanged sentences

Five Below, Inc.

(collectively referred to herein with its wholly owned subsidiary as the "Company") is a specialty value retailer offering merchandise targeted at the tween and teen demographic.

(collectively referred to herein with its wholly-owned subsidiaries as the "Company") is a specialty value retailer offering merchandise targeted at the tween and teen demographic.

The Company offers an edited assortment of products, with most priced at $ 5 and below.

2 unchanged sentences

thus, it is not dependent on a single vendor or a group of vendors.

The Company is incorporated in the Commonwealth of Pennsylvania and, as of January 28, 2023, operated in 42 states excluding Alaska, Hawaii, Idaho, Montana, Oregon, Vermont, Washington and Wyoming.

As of January 28, 2023 and January 29, 2022, the Company operated 1,340 stores and 1,190 stores, respectively, each operating under the name “Five Below,” and sells merchandise on the internet, through the Company's fivebelow.com e-commerce website as well as with an on demand third party delivery service to enable our customers to shop online and receive convenient same day delivery.

The Company is incorporated in the Commonwealth of Pennsylvania and, as of February 3, 2024, operated in 43 states excluding Alaska, Hawaii, Idaho, Montana, Oregon, Washington and Wyoming.

As of February 3, 2024 and January 28, 2023, the Company operated 1,544 stores and 1,340 stores, respectively, each operating under the name “Five Below.” The Company also sells its merchandise on the internet, through the Company's fivebelow.com e-commerce website, offering home delivery and the option to buy online and pick up in store.

Additionally, the Company sells merchandise through on-demand third-party delivery service to enable our customers to shop online and receive convenient delivery.

The Company's consolidated financial statements include the accounts of Five Below, Inc.

and its subsidiary (1616 Holdings, Inc., formerly known as Five Below Merchandising, Inc.).

All intercompany transactions and accounts are eliminated in the consolidation of the Company's and subsidiary's financial statements.

(b) Impact of COVID-19

As a result of the COVID-19 pandemic, the Company's business operations and results of operations, including its net sales, earnings and cash flows, were materially impacted in fiscal 2020 as a result of the temporary closures of its stores in the first half of 2020, and decreased customer traffic in stores, as the result of limitations on the number of persons permitted in stores at one time by certain local and state regulations.

The Company's ability to operate improved beginning in the second half of fiscal 2020 and extending into fiscal 2021.

and its subsidiaries (1616 Holdings, Inc., formerly known as Five Below Merchandising, Inc., 1616 Sourcing Holdco LLC and 1616 Holdings India Private Limited).

All intercompany transactions and accounts are eliminated in the consolidation of the Company's and subsidiaries' financial statements.

(b) Fiscal Year

The Company operates on a 52/53-week fiscal year ending on the Saturday closest to January 31.

References to "fiscal year 2023" or "fiscal 2023" refer to the period from January 29, 2023 to February 3, 2024, which consists of a 53-week year.

References to "fiscal year 2022" or "fiscal 2022" refer to the period from January 30, 2022 to January 28, 2023, which consists of a 52-week fiscal year.

References to "fiscal year 2021" or "fiscal 2021" refer to the period from January 31, 2021 to January 29, 2022, which consists of a 52-week fiscal year.

References to "fiscal year 2020" or "fiscal 2020" refer to the period from February 2, 2020 to January 30, 2021, which consists of a 52-week fiscal year.

(d) Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity date of three months or less when purchased to be cash equivalents.

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For credit card and debit card receivables, the majority of payments due from banks for third-party credit card and debit card transactions resulting from customer purchases at the Company’s retail stores process within 24 to 48 hours, except for transactions occurring on a Friday, which are generally processed the following Monday.

Amounts due from banks for these transactions classified as cash equivalents totaled $ 17.4 million and $ 13.0 million as of January 28, 2023 and January 29, 2022, respectively.

Amounts due from banks for these transactions classified as cash equivalents totaled $ 22.4 million and $ 17.4 million as of February 3, 2024 and January 28, 2023, respectively.

Book overdrafts, which are outstanding checks in excess of funds on deposit, are recorded within accounts payable in the accompanying consolidated balance sheets and within operating activities in the accompanying consolidated statements of cash flows.

As of January 28, 2023 and January 29, 2022, the Company had cash equivalents of $ 313.2 million and $ 41.3 million, respectively.

(e) Fair Value of Financial Instruments

As of February 3, 2024 and January 28, 2023, the Company had cash equivalents of $ 154.9 million and $ 313.2 million, respectively.

(d) Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

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Since quoted prices in active markets for identical assets are not available, these prices are determined by the third-party pricing service using observable market information such as quotes from less active markets and quoted prices of similar securities.

As of January 28, 2023 and January 29, 2022, the Company's investment securities are classified as held-to-maturity since the Company has the intent and ability to hold the investments to maturity.

As of February 3, 2024 and January 28, 2023, the Company's investment securities are classified as held-to-maturity since the Company has the intent and ability to hold the investments to maturity.

Such securities are carried at amortized cost-plus accrued interest and consist of the following (in thousands):

As of January 28, 2023

As of February 3, 2024

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Market Value

1 unchanged sentence

$ 280,067 $ — $ 154 $ 279,913

Municipal bonds

Total $ 280,339 $ — $ 154 $ 280,185

Corporate bonds

$ 7,791 $ — $ 8 $ 7,783

Total $ 7,791 $ — $ 8 $ 7,783

As of January 28, 2023

2 unchanged sentences

$ 66,845 $ — $ 292 $ 66,553

Municipal bonds

$ 66,845 $ — $ 292 $ 66,553

$ 277,141 $ — $ 330 $ 276,811

Corporate bonds $ 37,717 $ — $ 199 $ 37,518

Total $ 37,717 $ — $ 199 $ 37,518

Short-term investment securities as of January 28, 2023 and January 29, 2022 all mature in one year or less.

Long-term investment securities as of January 29, 2022 all mature after one year but in less than two years.

(f) Inventories

Short-term investment securities as of February 3, 2024 and January 28, 2023 all mature in one year or less.

Long-term investment securities as of February 3, 2024 all mature after one year but in less than two years.

(e) Inventories

Inventories consist of finished goods purchased for resale, including freight and tariffs, and are stated at the lower of cost and net realizable value, at the individual product level.

4 unchanged sentences

The shrink estimate can be affected by changes in merchandise mix and changes in actual shrink trends.

(g) Prepaid Expenses and Other Current Assets

(f) Prepaid Expenses and Other Current Assets

Prepaid expenses in fiscal 2023 and fiscal 2022 were $ 30.5 million and $ 25.9 million, respectively.

Other current assets in fiscal 2023 and fiscal 2022 were $ 123.5 million and $ 104.7 million, respectively.

(h) Property and Equipment

(g) Property and Equipment

Property and equipment are stated at cost.

4 unchanged sentences

Leasehold improvements located in the shipcenters and the corporate headquarters are amortized over the shorter of the useful life or the lease term.

Depreciation and amortization expense for property and equipment, which is included in selling, general and administrative expenses in the accompanying consolidated statements of operations, was $ 105.6 million, $ 84.8 million and $ 69.3 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

Depreciation and amortization expense for property and equipment was $ 130.7 million, $ 105.6 million and $ 84.8 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

Property and equipment, net, consists of the following (in thousands):

January 28, 2023 January 29, 2022

February 3, 2024 January 28, 2023

Land $ 30,371 $ 30,371

6 unchanged sentences

Property and equipment, net $ 1,134,312 $ 925,530

(i) Impairment of Long-Lived Assets

(h) Impairment of Long-Lived Assets

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

5 unchanged sentences

In the event of a store closure, the Company will record an impairment charge, if appropriate, or accelerate depreciation over the revised useful life of the asset.

Based on the Company's analysis performed in fiscal 2022, fiscal 2021 and fiscal 2020, management believes that no impairment of long-lived assets exists for the periods ended January 28, 2023, January 29, 2022 and January 30, 2021.

(j) Deferred Financing Costs

Based on the Company's analysis performed in fiscal 2023, fiscal 2022 and fiscal 2021, management believes that no impairment of long-lived assets exists for the periods ended February 3, 2024, January 28, 2023 and January 29, 2022.

(i) Deferred Financing Costs

Deferred financing costs are amortized to interest expense over the term of the related credit agreement.

As of January 28, 2023 and January 29, 2022, the Company had $ 0.7 million and $ 0.9 million remaining in the accompanying consolidated balance sheets within Other Assets.

(k) Operating Leases

As of February 3, 2024 and January 28, 2023, the Company had $ 0.5 million and $ 0.7 million remaining in the accompanying consolidated balance sheets within Other Assets.

(j) Operating Leases

The Company leases store locations, shipcenters, the corporate headquarters and equipment used in its operations and evaluates and classifies its leases as operating or capital leases for financial reporting purposes.

Any assets held under a finance lease are included in property and equipment, net.

Operating lease expense is recorded on a straight-line basis over the lease term.

Leases are accounted for in accordance with the guidance in "Leases" (Topic 842).

The Company is required to recognize an operating lease asset and an operating lease liability for its leases (other than leases that meet the definition of a short-term lease).

The liability is equal to the present value of the lease payments using an estimated incremental borrowing rate, on a collateralized basis over similar term, that the Company would have incurred to borrow the funds necessary to purchase the leased asset.

The asset is based on the liability, subject to certain adjustments, such as for initial direct costs.

Operating leases result in straight-line expense while finance leases result in a front-loaded expense pattern.

At the inception of a lease, the Company determines the lease term, which includes periods under the exercise of renewal options that are reasonably assured.

9 unchanged sentences

In addition, the Company's leases may include early termination options.

(l) Other Accrued Expenses

(k) Other Accrued Expenses

Other accrued expenses include accrued capital expenditures of $ 48.3 million and $ 43.6 million in fiscal 2023 and fiscal 2022, respectively.

(m) Deferred Compensation

(l) Deferred Compensation

The Company approved and adopted the Five Below, Inc.

4 unchanged sentences

The related liability is recorded as deferred compensation and included in other long-term liabilities in the consolidated balance sheets.

(n) Equity Method Investments

(m) Equity Method Investments

The Company uses the equity method to account for its investments in which the Company is deemed to have the ability to exercise significant influence over an investee’s operating and financial policies or in which the Company holds a significant partnership or limited liability company interest.

4 unchanged sentences

The total amount of impairment and reserve was approximately $ 9.7 million and was recorded in interest income (expense) and other income (expense), net in the consolidated statements of operations.

(o) Share-Based Compensation

(n) Share-Based Compensation

The Company measures the cost of crew services received in exchange for share-based compensation based on the grant date fair value of the employee stock award.

9 unchanged sentences

Share-based compensation cost recognized and included in expenses for fiscal 2023, fiscal 2022 and fiscal 2021, was $ 17.9 million, $ 23.6 million and $ 25.8 million, respectively.

(p) Revenue Recognition

(o) Revenue Recognition

Revenue from store operations is recognized at the point of sale when control of the product is transferred to the customer at such time.

7 unchanged sentences

As permitted by applicable accounting guidance, ASU 2014-09 "Revenue from Contracts with Customers," the Company has elected to exclude all sales taxes collected from customers and remitted to governmental authorities from net sales in the accompanying consolidated statements of operations.

(q) Shipping and Handling Revenues and Costs

(p) Shipping and Handling Revenues and Costs

The Company includes all shipping and handling revenue from e-commerce sales in net sales.

Shipping and handling costs, which are included in cost of goods sold in the accompanying consolidated statements of operations, include fulfillment and shipping costs related to the Company's e-commerce operations.

(r) Cost of Goods Sold

(q) Cost of Goods Sold

Cost of goods sold reflects the direct costs of purchased merchandise and inbound freight and tariffs, as well as store occupancy, distribution and buying expenses.

2 unchanged sentences

Buying costs include compensation expense for the Company's internal buying organization.

(s) Selling, General and Administrative Expenses

Selling, general and administrative expenses include payroll and other compensation, marketing and advertising expense, depreciation and amortization expense, and other selling and administrative expenses.

(t) Vendor Allowances

(r) Selling, General and Administrative Expenses (including Depreciation and Amortization)

Selling, general and administrative expenses (including depreciation and amortization) include payroll and other compensation, marketing and advertising expense, depreciation and amortization expense, and other selling and administrative expenses.

(s) Vendor Allowances

The Company receives various incentives in the form of allowances, free product and promotional funds from its vendors based on product purchases and advertising activities.

3 unchanged sentences

To the extent these conditions are not met, these allowances are recorded as merchandise allowances.

(u) Store Pre-Opening Costs

(t) Store Pre-Opening Costs

Costs incurred between completion of a new store location’s construction and its opening (pre-opening costs) are charged to expense as incurred.

Pre-opening costs were $ 18.3 million, $ 10.7 million and $ 10.9 million in fiscal 2023, fiscal 2022, and fiscal 2021, respectively, and are recorded in the accompanying consolidated statements of operations based on the nature of the expense.

(v) Advertising Costs

(u) Advertising Costs

Advertising costs are charged to expense the first time the advertising takes place.

Advertising expenses were $ 62.5 million, $ 54.1 million and $ 31.3 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

(w) Income Taxes

(v) Income Taxes

Income taxes are accounted for under the asset-and-liability method.

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Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

(x) Commitments and Contingencies

(w) Commitments and Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Legal costs incurred in connection with loss contingencies are expensed as incurred.

(y) Use of Estimates

(x) Use of Estimates

The preparation of consolidated financial statements requires management of the Company to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.

1 unchanged sentence

Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, net realizable value for inventories, income taxes, share-based compensation expense, the incremental borrowing rate utilized in operating lease liabilities, equity method investments, and notes receivable.

(z) Recently Issued Accounting Standards

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04").

The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022.

The Company determined that the impact of the adoption of ASU 2020-04 will not have a material impact on its consolidated financial statements.

(y) Recently Issued Accounting Standards

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations, which requires that a buyer in a supplier finance program disclose sufficient information about the program to allow a user of financial statements to understand the program’s nature, activity during the period, changes from period to period, and potential magnitude.

The amendments in this ASU are effective for the first quarter of 2023, except for the amendment on roll-forward information, which is effective for the first quarter of 2024, with early adoption permitted.

The Company adopted this guidance on January 29, 2023, and the adoption did not impact the Company's disclosures on its consolidated financial statements.

(2) Revenue from Contracts with Customers

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Amount Percentage of Net Sales Amount Percentage of Net Sales Amount Percentage of Net Sales

$ 1,465,402 47.6 % $ 1,412,382 49.6 % $ 965,816 49.2 %

Leisure $ 1,644,171 46.2 % $ 1,465,402 47.6 % $ 1,412,382 49.6 %

Fashion and home 1,043,579 29.3 % 898,187 29.2 % 859,586 30.2 %

Snack and seasonal 871,619 24.5 % 712,719 23.2 % 576,386 20.2 %

712,719 23.2 % 576,386 20.2 % 294,860 15.0 %

Total $ 3,559,369 100.0 % $ 3,076,308 100.0 % $ 2,848,354 100.0 %

(1) Due to realignment of certain products, there was a minor adjustment to historical sales by product group.

The Company determines if an arrangement contains a lease at the inception of a contract.

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Leases with an initial term of 12 months or less are not recorded on the balance sheets and lease expense is recognized on a straight-line basis over the term of the short-term lease.

For certain real estate leases, the Company accounts for lease components and nonlease components as a single lease component.

For certain real estate leases, the Company accounts for lease components and non-lease components as a single lease component.

Certain real estate leases require additional payments for reimbursement of real estate taxes, common area maintenance and insurance as well as payments based on sales volume, all of which are expensed as incurred as variable lease costs.

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All of the Company's leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the consolidated balance sheets.

As of January 28, 2023 and January 29, 2022, the weighted average remaining lease term for the Company's operating leases was 7.6 years and 7.7 years respectively, and the weighted average discount rate was 5.2 % and 5.4 %, respectively.

The following table is a summary of the Company's components for net lease costs as of January 28, 2023 and January 29, 2022 (in thousands):

Fifty-Two Weeks Ended

Lease Cost January 28, 2023 January 29, 2022

As of February 3, 2024 and January 28, 2023, the weighted average remaining lease term for the Company's operating leases was 7.5 years and 7.6 years, respectively, and the weighted average discount rate was 5.3 % and 5.2 %, respectively.

The following table is a summary of the Company's components for net lease costs as of February 3, 2024 and January 28, 2023 (in thousands):

Fiscal Year Ended

Lease Cost February 3, 2024 January 28, 2023

Operating lease cost $ 268,096 $ 231,958

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* Excludes short-term lease cost, which is immaterial

The following table summarizes the maturity of lease liabilities under operating leases as of January 28, 2023 (in thousands):

The following table summarizes the maturity of lease liabilities under operating leases as of February 3, 2024 (in thousands):

Maturity of Lease Liabilities Operating Leases

4 unchanged sentences

Present value of lease liabilities $ 1,738,550

The following table summarizes the supplemental cash flow disclosures related to leases as of January 28, 2023 and January 29, 2022 (in thousands):

Fifty-Two Weeks Ended

January 28, 2023 January 29, 2022

The following table summarizes the supplemental cash flow disclosures related to leases as of February 3, 2024 and January 28, 2023 (in thousands):

Fiscal Year Ended

February 3, 2024 January 28, 2023

Cash paid for amounts included in the measurement of lease liabilities:

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(1) Included within operating activities in the Company's Consolidated Statements of Cash Flows.

As of January 28, 2023, the Company has entered into commitments for new stores for which the leases have not yet commenced that have future minimum lease payments of approximately $ 216.0 million.

During the fifty-two weeks ended January 28, 2023, the Company committed to 173 new store leases with average terms of approximately ten years that have future minimum lease payments of approximately $ 361.9 million.

From January 30, 2022 to March 16, 2023, the Company committed to 26 new leases with terms of ten years that have future minimum lease payments of approximately $ 50.4 million.

As of February 3, 2024, the Company has entered into commitments for new stores for which the leases have not yet commenced that have future minimum lease payments of approximately $ 283.5 million.

During the fifty-three weeks ended February 3, 2024, the Company committed to 291 new store leases with average terms of approximately ten years that have future minimum lease payments of approximately $ 543.1 million.

From February 4.

2024 to March 21, 2024, the Company committed to 25 new leases with terms of ten years that have future minimum lease payments of approximately $ 52.2 million.

(4) Income Per Common Share

12 unchanged sentences

Diluted income per common share $ 5.41 $ 4.69 $ 4.95

The effects of the assumed vesting of restricted stock units outstanding as of January 28, 2023, January 29, 2022 and January 30, 2020 for 72,043 , 9,781 and 20,425 shares of common stock, respectively, were excluded from the fiscal 2022, fiscal 2021 and fiscal 2020 calculation of diluted income per common share as their impact would have been anti-dilutive.

The effects of the assumed vesting of restricted stock units outstanding as of February 3, 2024, January 28, 2023 and January 29, 2022 for 19,152 , 72,043 and 9,781 shares of common stock, respectively, were excluded from the fiscal 2023, fiscal 2022 and fiscal 2021 calculation of diluted income per common share as their impact would have been anti-dilutive.

The aforementioned excluded shares do not reflect the impact of any incremental repurchases under the treasury stock method.

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Pursuant to the Second Amendment, the Revolving Credit Facility expires on the earliest to occur of (i) September 16, 2027 or (ii) an event of default.

The Second Amendment also replaced the existing LIBOR rate provisions with SOFR rate provisions which converted then outstanding LIBOR loans into SOFR loans and additionally makes a number of other revisions to other provisions of the Credit Agreement.

The Second Amendment also replaced the existing LIBOR (the "London Interbank Offered Rate") provisions with SOFR (the "Secured Overnight Financing Rate") provisions which converted then outstanding LIBOR loans into SOFR loans and additionally makes a number of other revisions to other provisions of the Credit Agreement.

Giving effect to the Second Amendment, outstanding borrowings under the Revolving Credit Facility would accrue interest at floating rates plus an applicable margin ranging from 1.12 % to 1.50 % for SOFR loans and 0.125 % to 0.50 % for base rate loans, and letter of credit fees range from 1.125 % to 1.50 %, in each case based on the average availability under the Revolving Credit Facility.

The Revolving Credit Facility may be increased up to $ 150.0 million, subject to certain conditions, including obtaining commitments from one or more Lenders (the "Accordion").

The Revolving Credit Facility may be increased by up to an additional $150.0 million, subject to certain conditions, including obtaining commitments from one or more Lenders (the "Accordion").

Pursuant to the First Amendment, the Company obtained commitments from the Lenders that would allow the Company at its election (subject only to satisfaction of certain customary conditions such as the absence of any Event of Default), to increase the amount of the Revolving Credit Facility by an aggregate principal amount up to $ 50 million within the Accordion (the "Committed Increase").

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All obligations under the Revolving Credit Facility are guaranteed by 1616 Holdings and secured by substantially all of the assets of the Company and 1616 Holdings.

As of January 28, 2023 and January 29, 2022, the Company was in compliance with the covenants applicable to it under the Revolving Credit Facility.

As of February 3, 2024 and January 28, 2023, the Company was in compliance with the covenants applicable to it under the Revolving Credit Facility.

During fiscal 2023 and fiscal 2022, the Company had no borrowings or interest expense under the Revolving Credit Facility.

During fiscal 2020, the Company borrowed and repaid approximately $ 50 million from its Revolving Credit Facility.

As of January 28, 2023, the Company had approximately $ 192 million available on the Revolving Credit Facility.

As of February 3, 2024, the Company had approximately $ 216 million available on the Revolving Credit Facility.

As of January 28, 2023, the Company had approximately $ 192 million available on the Revolving Credit Facility.

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The Company has an executive severance plan that is applicable to certain key crew that provide for, among other things, salary, bonus, severance, and change-in-control provisions.

As of January 28, 2023, the Company has other purchase commitments of approximately $ 15.8 million consisting of purchase agreements for materials that will be used in the construction of new stores.

As of February 3, 2024, the Company has other purchase commitments of approximately $ 5.6 million consisting of purchase agreements for materials that will be used in the construction of new stores.

Contingencies

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(7) Shareholders’ Equity

As of January 28, 2023, the Company is authorized to issue 120 million shares of $ 0.01 par value common stock and 5 million shares of $ 0.01 par value preferred stock.

As of February 3, 2024, the Company is authorized to issue 120 million shares of $ 0.01 par value common stock and 5 million shares of $ 0.01 par value preferred stock.

The holders of the common stock are entitled to one vote per share of common stock and are entitled to receive dividends if declared by the Board of Directors.

The preferred stock may be issued

from time to time in series as designated by the Board of Directors.

The preferred stock may be issued from time to time in series as designated by the Board of Directors.

The designations, powers, preferences, voting rights, privileges, options, conversion rights, and other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof shall be designated by the Board of Directors.

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The Plan, as amended, allows for the issuance of up to a total of 4.3 million shares under the Plan.

As of January 28, 2023, approximately 3.5 million stock options, restricted shares, or restricted stock units were available for grant.

As of February 3, 2024, approximately 3.4 million stock options, restricted shares, or restricted stock units were available for grant.

Common Stock Options

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price Weighted

Balance as of February 1, 2020 231,525 $ 30.92 4.1

Balance as of January 30, 2021 53,029 $ 33.22 3.2

Forfeited ( 432 ) 4.28

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Exercised ( 7,800 ) 36.70

Balance as of January 28, 2023 18,026 34.92 1.8

Exercisable as of January 28, 2023 18,026 $ 34.92 1.8

Balance as of February 3, 2024 10,126 33.48 1.6

Exercisable as of February 3, 2024 10,126 $ 33.48 1.6

The fair value of each option award granted to crew, including outside directors, is estimated on the date of grant using the Black-Scholes option-pricing model.

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The total intrinsic value of stock options exercised during fiscal 2023, fiscal 2022 and fiscal 2021 was $ 1.1 million , $ 3.1 million and $ 2.1 million, respectively.

The aggre gate intrinsic value of stock options outstanding and exercisable was $ 2.9 million as of January 28, 2023.

The aggre gate intrinsic value of stock options outstanding and exercisable was $ 1.5 million as of February 3, 2024.

In fiscal 2023, fiscal 2022 and fiscal 2021, the Company received cash from the exercise of options of $ 0.3 million, $ 0.8 million and $ 0.4 million, respectively.

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Number Weighted-Average Grant Date Fair Value Number Weighted-Average Grant Date Fair Value

Non-vested balance as of February 1, 2020 250,352 $ 79.37 357,166 $ 66.96

Non-vested balance as of January 30, 2021 304,398 $ 99.94 259,776 $ 151.73

Granted 77,966 185.62 89,460 196.36

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Forfeited ( 22,670 ) 152.87 ( 130,918 ) 161.02

Non-vested balance as of January 28, 2023 226,389 $ 142.20 458,062 $ 163.56

Non-vested balance as of February 3, 2024 196,309 $ 163.82 299,394 $ 206.07

In connection with the vesting of RSUs and PSUs during fiscal 2023, the Company withh eld 85,594 shares with an aggregate value of $ 16.6 million in satisfaction of minimum tax withholding obligations due upon vesting.

In connection with the vesting of RSUs and PSUs during fiscal 2021, the Company withheld 38,342 shares with an aggregate value of $ 7.3 million in satisfaction of minimum tax withholding obligations due upon vesting.

In connection with the vesting of RSUs during fiscal 2022, the Company withheld 31,971 shares with an aggregate value of $ 5.0 million in satisfaction of minimum tax withholding obligations due upon vesting.

As of January 28, 2023, there was $ 30.6 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements (including stock options, RSUs and PSUs) granted under the Plan.

In connection with the vesting of RSUs during fiscal 2021, the Company withheld 38,342 shares with an aggregate value of $ 7.3 million in satisfaction of minimum tax withholding obligations due upon vesting.

As of February 3, 2024, there was $ 32.4 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements (including stock options, RSUs and PSUs) granted under the Plan.

The cost is expected to be recognized over a weighted average vesting period of 2.2 years.

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This program expired on March 31, 2021.

On March 9, 2021, our Board of Directors approved a new share repurchase program for up to $ 100 million of its common shares through March 31, 2024.

On March 9, 2021, the Company's Board of Directors approved a new share repurchase program for up to $ 100 million of its common shares through March 31, 2024.

In fiscal 2021, the Company repurchased 368,699 shares under this program at an aggregate cost of approximately $ 60.0 million, or an average price of $ 162.75 per share.

In fiscal 2022, the Company repurchased 247,132 shares under this program at an aggregate cost of approximately $ 40.0 million, or an average price of $ 161.88 per share.

We have exhausted repurchases under this program.

On June 14, 2022, our Board of Directors approved a new share repurchase program for up to $ 100 million of our common stock through June 30, 2025.

As of January 28, 2023, we have not made any repurchases under this program.

The company has exhausted repurchases under this program.

On June 14, 2022, the Company's Board of Directors approved a new share repurchase program for up to $ 100 million of our common stock through June 30, 2025.

In fiscal 2023, the Company repurchased 504,369 shares under this program at an aggregate cost of approximately $ 80.0 million, or an average price of $ 158.63 per share.

This program was retired on November 27, 2023.

On November 27, 2023, the Company's Board of Directors approved a new share repurchase program for up to $ 100 million of the Company's common stock through November 27, 2026.

As of February 3, 2024, the Company has not made any repurchases under this program.

Since approval of the share repurchase program in March 2018, we have purchased approximately 1,600,000 shares for an aggregate cost of approximately $ 232 million.

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The ultimate realization of deferred tax assets is dependent upon generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible.

As of January 28, 2023, there were no material valuation allowances that have been provided for net deferred tax assets as management believes that it is more likely than not that the Company will realize all material deferred tax assets before any expirations as of January 28, 2023.

As of February 3, 2024, there were no material valuation allowances that have been provided for net deferred tax assets as management believes that it is more likely than not that the Company will realize all material deferred tax assets before any expirations as of February 3, 2024.

The components of the income tax expense are as follows (in thousands):

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24.9 % 24.7 % 24.0 %

24.7 % 24.0 % 19.4 %

(1) Other line includes excess tax benefits relating to share-based payment accounting.

The effective tax rate for fiscal 2022 compared to fiscal 2021 was primarily driven by discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" with respect to the requirements to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets.

The effective tax rate for fiscal 2021 compared to fiscal 2020 was primarily driven by discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" with respect to the requirements to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets and the impact of the CARES Act in fiscal 2020.

The effective tax rate for fiscal 2023 compared to fiscal 2022 was primarily driven by changes in the mix of pretax income across state jurisdictions and non-deductible expenses, partially offset by discrete items, which includes the impact of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" with respect to the requirements to recognize excess income tax benefits or deficiencies as income tax benefit or expense in the consolidated statements of operations rather than as additional paid-in capital in the consolidated balance sheets.

The tax effects of temporary differences that give rise to deferred tax assets and liabilities are (in thousands):

January 28, 2023 January 29, 2022

February 3, 2024 January 28, 2023

Deferred tax assets:

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$ ( 66,743 ) $ ( 59,151 )

The Company had no material accrual for uncertain tax positions or interest or penalties related to income taxes on the Company’s balance sheets as of January 28, 2023 and January 29, 2022, and has not recognized any material uncertain tax positions or interest and/or penalties related to income taxes in the consolidated statements of operations for fiscal 2022, fiscal 2021, or fiscal 2020.

The Company had no material accrual for uncertain tax positions or interest or penalties related to income taxes on the Company’s balance sheets as of February 3, 2024 and January 28, 2023, and has not recognized any material uncertain tax positions or interest and/or penalties related to income taxes in the consolidated statements of operations for fiscal 2023, fiscal 2022, or fiscal 2021.

The Company files a federal income tax return as well as state tax returns.

The Company’s U.S.

federal income tax returns for the fiscal years ended February 1, 2020 and thereafter remain subject to examination by the U.S.

federal income tax returns for the fiscal years ended January 30, 2021 and thereafter remain subject to examination by the U.S.

Internal Revenue Service.

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Net sales $ 1,337,736 $ 736,405 $ 758,981 $ 726,247 $ 1,122,751 $ 645,034 $ 668,927 $ 639,596

Gross profit $ 452,397 $ 207,808 $ 228,509 $ 206,777 $ 396,894 $ 202,362 $ 230,319 $ 200,869

Operating income $ 268,442 $ 16,123 $ 58,594 $ 42,412 $ 225,769 $ 20,934 $ 56,011 $ 42,329

Net income $ 202,199 $ 14,594 $ 46,835 $ 37,478 $ 171,320 $ 16,146 $ 41,344 $ 32,718

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk